The American Institute of CPAs’ (AICPA) Auditing Standards Board has released a new auditing standard that determines when auditors are involved with an exempt offering document and the procedures they must follow.
Statement on Auditing Standards (SAS) No. 133, Auditor Involvement with Exempt Offering Documents, doesn’t amend or supercede prior guidance. It takes effect for exempt offering documents that are initially distributed, circulated, or submitted on or after June 15, 2018.
Several factors are driving the need for the new standard. The exempt securities market is large, and has new complexities and risks. Opportunities to issue exempt securities have risen as a result of regulations that create opportunities for small businesses to raise funds.
Combined, those factors spurred the board to determine that a standard of guidance was in order, including audit responsibilities, to promote consistency in practice. SAS No. 133 establishes performance requirements for auditors handling documents for exempt offerings, including:
• Municipal securities.
• Securities issued by nonprofit religious, education, or charitable organizations.
• Small issues of securities, such as Regulation A offerings.
• Franchise offerings.
So, when are auditors involved? If both of the following occur:
1. The auditor’s report on financial statements or the auditor’s review report on interim financial information is included or incorporated by reference in an exempt offering document.
2. The auditor performs one or more specified activities with respect to the exempt offering document. These activities include:
• Assisting the entity in preparing information included in the exempt offering document.
• Reading a draft of the exempt offering document at the entity’s request.
• Issuing a comfort or similar letter in accordance with AU-C Section 920, Letters for Underwriters and Certain Other Requesting Parties, or an agreed-upon procedures report in accordance with AT-C Section 215, Agreed-Upon Procedures Engagements, in lieu of a comfort letter or similar letter on information included in the exempt offering document.
• Participating in due-diligence discussions with underwriters, placement agents, broker-dealers, or other financial intermediaries in connection with the exempt offering.
• Issuing a practitioner’s attestation report on information relating to the exempt offering.
• Providing written agreement for the use of the auditor’s report in the exempt offering document.
• Updating an auditor’s report for inclusion in the exempt offering document.
When an auditor is involved with an exempt offering document, SAS No. 133 requires the practitioner to perform procedures described in Paragraphs 6–16 of AU-C Section 720, Other Information in Documents Containing Audited Financial Statements, on the exempt offering document.
The new standard also requires the auditor to perform procedures that identify events occurring between the date of the auditor’s report and the date of distribution, circulation, or submission of the exempt offering document that may have caused the auditor to revise the auditor’s report had the events been known to the auditor as of the date of the auditor’s report.
The TQA also addresses whether an entity is a state or local government in determining whether it is using the appropriate standards and how to report on the entity’s financial statements when the entity chooses to follow different standards or a special-purpose framework.
Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.